Celsius Holdings, Inc. (CELH) Earnings Call Transcript & Summary

Thank you, Dale. Before we begin, we're going to read our safe harbor disclosure. This presentation may contain statements that are not historical facts and are considered forward-looking in the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements contain projections of Celsius Holdings' future results of operations and our financial position and state other forward-looking information. In some cases, you can identify these statements by forward-looking with words such as anticipate, believe, could, estimate, expect, intend, may, should, will or would or similar words. You should not rely on forward-looking statements, and Celsius Holdings' actual results may differ materially from those indicated by forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, general economic and business conditions, our business strategies for expanding our presence in our industry, anticipated trends in our financial condition and results of operation, the impact of the competition and technology changes, existing and future regulations affecting our business, and other risks and uncertainties discussed in the reports Celsius Holdings has filed previously with the Securities and Exchange Commission. Celsius Holdings does not intend to or undertake no duty to update the information contained in this presentation. This document includes certain non-GAAP financial measures. Management considers GAAP financial measures as a result of such non-GAAP financial information and its evaluation of the company's financial statements and believe these non-GAAP measures provide useful supplemental information to assess the company's operational performance and financial position. These measures should not be viewed in addition to or in lieu of the company's diluted earnings per share, operating performance and financial measures as calculated in accordance to GAAP. Now moving to the presentation. I would like to thank -- welcome everyone again to the call. Thank you. I would also like to thank all of our shareholders for their support and interest. And I would like to thank our great team members, Board members, partners and customers, as without them, our great achievements would not be possible. In 2019, we saw significant momentum across all fronts, driven by exponential growth in our portfolio, which was represented by our eighth consecutive record year of increased revenue. Consumer demand in the beverage industry continues to trend towards the pursuit of healthier alternatives versus conventional beverages. And at Celsius, we are capitalizing on that trend to deliver rapid revenue growth, positive cash flow and increases in shareholder value. With our increasing number of routes to market, and expanding portfolio of products and flavors, as well as a brand that is more widely recognized now than ever before, we have strong momentum exiting 2019 and are poised for a successful 2020 and beyond. As we are all aware, consumer traffic and purchasing patterns were severely disrupted in the first 2 quarters of this year in 2020 as traditional shopping patterns gave way to increases in online ordering, curbside pickup and pantry purchasing, while consumers complied with the stay-at-home orders. These extraordinary times present challenges to all of us. And our condolences go out to all those who have been affected by the pandemic. The health and safety of our employees, customers, consumers and partners remains our top priority. And we continue to monitor the environment and implement contingency plans to mitigate risk through our business. Despite these disruptions we experienced through what we're experiencing through this COVID, the disruptions were met with demand, and we maintain a relatively smooth flow of products through the market. With a strong brand and a diverse and growing network of retailers, distributors and partners, and a strong balance sheet, we have been able to rise above the challenges. And in the first quarter of 2020, we set another sales record, with increases across geographic regions, while expanding gross profits and reporting positive EBITDA and net income. We continue to build upon our mission to be the global leader of a branded portfolio, which is proprietary, clinically proven or innovative in its category and offers significant health benefits. Our 2019 financial results grew revenues to over $75 million. Revenues grew 43% on a consolidated basis. Domestic revenues increased 53% to a record $59.7 million, and international revenues increased 13% to $15.5 million. Our improved gross profit margins increased 49% to a record $31.3 million, and we had reported net income of approximately $10 million, inclusive of a $12.5 million gain associated with the change of our business model in China to a licensing royalty model. In addition, our non-GAAP adjusted EBITDA was reported at approximately $4 million, an improvement over the prior year in 2019 from '18 of $2.2 million. In addition, our stock performance throughout 2019 increased by over 40%, and the market value of Celsius increased $125 million approximately throughout the year. As we entered 2020, the momentum has continued. We have seen so far through July 29, 2020, our stock performance has increased approximately 200%. And since the COVID impact as of March 17, 2020, the company has reached all-time highs and is now has been valued at over $1 billion market cap. Significant achievements has been made as we continue to lay the groundwork and framework for future growth. The company is operating in some of the fastest-growing categories in food and beverage. We operate in the energy drink category, which is anticipated to grow by 2025 at a 7% CAGR to over $84.8 million. In addition, there's things happening in the energy drink category. There's transformation taking place and an evolution. The traditional energy drinks were powered with really marketing queues of racecars and dirt bikes and really a different type of energy. With Celsius being born in vitamin specialty gyms and health clubs, we're bringing performance to the performance energy category, and it's authentic. The energy of today is seeing queues about improving oneself, improving one's body, ultimately driving your peak performance. That's really what energy drinks are about. We continue to capitalize on these trends with our fitness forward position into mass retail as health and wellness trends continue to grow. The evolution and the energy category is now. With the 85% growth rate and anticipated the global category to be $84.8 billion, we have massive opportunities. In addition to the shifts we're seeing in the energy drink category, we're seeing millennials over-indexed in energy drink consumption for these better-for-you performance energy products. In addition, the traditional energy drink consumer is aging. They're attracted for better ingredients, better products that are more aligned with their health and wellness goals. And consumers are demanding products with less sugar, better ingredients and functional benefits. When you look at the momentum, we just reported some of our results for 2019. Those were our sellout numbers. Now what about our sell-through numbers? We're seeing good results with channel sell-throughs. And a big opportunity we had at Celsius is in the convenience channel. As I mentioned, we were born in vitamin specialty gyms and health clubs and made our journey out into grocery. We've entered mass, and we've entered the drug channel. We've started to penetrate the convenience channel right around late 2017, mid-2017, with the launch into 7-Eleven. We continue to grow in those retailers. And the latest scan data of March 22 showed that Celsius is growing at a 49% growth rate, outpacing the category over 6.8x, with only a 12.6% ACV, shows the opportunity we have. And we are hearing from retailers, as they update their retail sets, they will be looking for products like Celsius that offer better-for-you functional options as they update their sets for the new energy drink category -- new energy drink consumer of today and tomorrow. Unfortunately, due to the pandemic, a lot of these retailers have delayed their resets. But time will change, the wave will curve, and the retail category and the energy category will continue to evolve. As I mentioned, we're pioneering this position as a proven fitness drink. We are a cross between conventional energy, healthy energy and functional energy. Celsius is the energy 2.0. We all know about the masses that left the sugary sodas to sparkling waters and functional waters. The next category under disruption that's heading into the evolution is the energy category, and Celsius is here with a point of differentiation, with better-for-you options. We have the products. We know our position. We're gaining placements. We're up to about 65,000 locations nationwide in North America. We understand our promotions. We're creating meaningful online and off-line experiential connections with consumers, of lasting consumers as we build the Celsius community. And you look at some of our channels of trade. 2019 was a monumental year for Celsius. We continue to build upon our convenience channel. We brought on Food Lion, further penetrated into Kroger and are very well positioned for further growth in convenience. In addition, we solidified our relationship with CVS and Rite Aid. In 2018, we started the test to that -- and Rite Aid and CVS, we succeeded. And we continue to build upon them with that account, CVS and Rite Aid. And now we have national authorization with multiple SKUs authorized in the energy category. In addition, in late 2018, we partnered with Target with a test. The test went successfully. And now we have over 4 flavors or SKUs authorized nationwide in Target and are running an end cap program right now for our first time when we're partnering with them. We expect the mass market channel to be very successful for Celsius. And just recently, in 2020, we -- our successful test at Walmart was successful, and we started to enter Walmart for the first time. Lots of opportunities as we continue to grow in scale in a variety of markets. We all know that COVID has impacted many of these channels. And in the first half of this year, our fitness channel has struggled. Our vending business has struggled and our mark to markets. But we have seen other markets continue to grow as masses change their shopping patterns, as well as growth on e-com, convenience, conventional grocery, drug and mass. Another great opportunity we had, we started in 2019 was building a national DSD network. We announced that in June of 2019, and we've continued that progression. We closed the year in 2019 with over 100 key, marquee DSD, direct store delivery, partners. And some of these distributors we brought on are the likes of Big Geyser, one of the largest in New York. In addition, we brought on multiple Anheuser-Busch distributors, Keurig Dr Pepper, Pepsi, Molson MillerCoors. We see great opportunity on leveraging a DSD network. We flipped over several key accounts in the New York metropolitan market, where we saw sales more than double in those markets being serviced by DSD. Our goal is to flip over the routes to market to more DSD partners as we continue to fill out the DMAs. We're currently talking to many of our key account partners and switching over to this preferred route to market in the back half of this year and into 2021. This DSD model does a variety of things for us. Number one, Target, Walmart, CVS, Rite Aid and many key accounts can't keep up with the high velocity of Celsius, so you do see sporadic out of stocks. The direct store delivery will keep us in stock, improve our in-store execution, improve our SKU placements, and ultimately improving our velocity and also increasing our distribution in several small formats throughout a given market, further increasing our ACV. In addition to the foundation that has been laid and the growth seen in North America, we made several strategic initiatives and actions that we took in 2019 on a global basis. We acquired Func Food, our strategic distribution partner in the Nordics. Celsius is one of the top-selling fitness drinks in Sweden. And by acquiring our partner, it gives us a foundation in the market and a beachhead for European expansion. In addition, it was an accretive transaction to our earnings and solidifies our position in the marketplace. The same trends in North America are happening in Europe, and they're also happening in Asia. The strategic initiative that we took in Asia in 2019 and that was in January when we changed to a licensing royalty model in China. Changing to this licensing royalty model in China has several advantages for us. Number one, it recaptured our previous investment in prior years in 2017 and '18. Also, it solidified -- changes the licensing to a royalty model and allows us to continue to participate in this enormous market of opportunity, and -- but also continuing to leverage our partners' expertise in the marketplace. This new model mitigates our risks, but also is able to -- allows us to continue to increase our market share in China. We further grew within Hong Kong as well as further expanded into Malaysia for the first time. Our initiative at Celsius and our road map is to continue to build upon our core, build upon our product lines with new flavor launches. Most recently, in 2019, we launched a great-tasting new Peach Vibe flavor, which has been extremely well received. In addition to expand -- and our expansion into adjacent categories, late in 2018, we launched our CELSIUS HEAT line, our proven performance line. And in 2019, we further expanded with our BCAA Recovery line, which fuels muscle recovery and allows us to continue to sell within this fitness channel and keep our unique position. Disrupting the market with new products that are innovative and targeting health-minded consumers. We have strategic objectives and our growth road map revolves around our teams, brand building and supply chain. Our teams are focused, disciplined, results orientated and purpose-driven. We're building brand equity, increasing our portfolio breadth, and expanding our channels of trade and driving our ACV gains. The supply chain, we continue to improve upon, improving our margins, driving and leveraging data analytics. We are operationally focused, and we are transforming our organization for scale. Everything we do revolves around shareholder value: identifying, creating and building and nurturing our brand position, implementing strategic investments, continuing to innovate in the category, drive superior sales performance, optimize with cost savings, marginalize our run rates. All with -- everything we do revolves around shareholder value. I'll now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer, for a financial review.

Thank you, John. Celsius has had excellent financial performance, and this is seen here in our continued compounded annual growth. If you look at our results for the full company, we're performing at around 45% compounded annual growth over the last 3 or 4 years. If you further drill down, you can see that, domestically, we've been performing even better at over 60% compounded annual growth. And in international, we have performed at around 20%. International for the most part has been led by Europe or European results. And therefore, if you look at the right side of the screen, you'll see that there has been some lumpiness in the results. Now that we've made the acquisition, we expect that there will be a much smoother type of performance in terms of revenue. One of the key aspects that we also want to highlight and it's important for our shareholders to understand is our performance as it relates to gross profitability. Despite the fact that, obviously, 46% of profitability is very respectable, if you compare us or you want to benchmark us with other competitors, such as Monster, who excludes the freight out from their cost of goods sold, if you normalize that, due to the fact that, in Celsius, we include that as part of our cost of goods sold, then you would see that our pro forma gross profitability would actually translate to over 50% performance. And we further expect that to continue to improve with the consolidation of our European business and also as we continue to drive cost savings and synergies in our performance. Lastly, to give a financial snapshot of what has transpired. Again, revenue growth, up 95% to $28.8 million. Profitability also at $13 million, up 128%. And again, at 46.1%, again with outbound freight. And excluding outbound freight, that would translate to over 53%. We also provided -- or were able to obtain $546,000 of net income and a very good result in adjusted EBITDA of $2.8 million. In our balance sheet, we will have a very good cash position at $19.1 million, and that's also with the investment that we've made regarding inventory in order to make sure that we can properly service our accounts during this uncertain times. So all in all, very good performance, very solid performance, not only in our P&L, but also on our balance sheet. We will now turn it over to Q&A. So feel free to provide us with your questions via the website.

Well, thank you, Edwin. We'll pause for a second for Q&A questions. There is a Q&A section on the website where you're able to type in an instant message question. We'll pause for a second. Okay. We have our first question. From [ Greg Fraser ] asking, will the transition to DSD affect gross margin? Thank you, Greg. Great question. On a consolidated basis, we feel there's going to be a marginal impact on the gross profits in regards to moving over to this DSD-preferred model. There's a couple of areas where we'd be saving in regards to better logistics, freight savings. Also, many of our wholesalers and direct-to-retail customers currently charge a lot of lumber fees that are called in the industry as well as a variety of different handling fees. So when you take into account all of the costs associated with servicing customers through a direct method and/or wholesaler method versus distributor method, we feel there'll be a marginal impact that will take place. Initially, it will be a little bit greater of an impact as we transition the business over. But we also picked up a lot of efficiencies as well, servicing many more customers that we couldn't service before, small format, also the much better, greater service that's provided to our key accounts, where today, you'll see a lot of out of stocks or product not in the proper placing due to relying on store personnel. So we do feel there -- in the long run, we will be able to marginalize, and it'll have a limited impact to margins. On the short run, there could be potential impacts to margins in the short run. But in the long run, much better, also gaining efficiencies on supply chain, raw material inputs and so forth. Thank you for your question. We'll take another brief pause and pause for another question. Okay. Our next question is from [ Dennis Italia ]. The question comes in, is there any future plans of entering the alcohol business market? We're seeing a lot of growth currently in the market with brands like White Claw and Truly. That is such a great question. We have a cross-functional innovation team. And we meet every week and also have a monthly and quarterly review. We're constantly looking for new innovative products, concepts and ideas, and evaluating them. At this point, we do not have specific plans for an alcoholic beverage to compete with Truly or White Claw. We have been looking at a variety of other sectors in regards to health and wellness products, also, additional thermogenic offerings and immunity products, as well as hydration and recovery products. Thank you very much for your question. We're constantly looking at alternatives. The key is that we remain focused on Celsius, and we're very disciplined in our approach. You're seeing our methodical approach with our CELSIUS HEAT and our Celsius BCAAs, very methodical rollout. But at the right time, if there's an opportunity, we will continue to add value for our shareholders where we see fit. We'll pause briefly for another polling of questions. We have a question from [ Jeffrey Ovara ]. What would happen to our shares if you were acquired by Coke or Pepsi? That would have to be -- I guess they would have to be buying -- purchasing from them -- purchasing from them. It would be a process that would take place through a tender offer that would take place. So our goal is not to -- shortsighted on a immediate takeout. As we've stated before on earnings calls as well as investor presentations, our goal is to be #1 in the energy category, continue to build shareholder value and capitalize on today's changes in the energy drink category. Thank you, [ Jeffrey ], for your question. We'll briefly pause for another polling. All right. It looks like we have no other questions. I truly appreciate everyone's time, interest and support. On behalf of the management team, leadership team, our employees and our Board of Directors, I thank you. I will now turn the call back over to Dale Bergman. Thank you.

Thank you, John, Edwin and team. Great job. We've been informed by our inspector of elections that the proxies and ballots have been counted. Based on the preliminary report provided by the inspector of elections, the results of the voting are that all the nominees for election to the Board have been elected and the appointment of the company's auditors has been ratified. There's -- as far as we -- there being no further business to come before the meeting, the annual meeting is now officially adjourned. The company's officers and directors would like to express their appreciation to all of you who took the time to attend this meeting as well as those who submitted their proxies but were not able to be present. We thank you. Stay safe, stay well.